Target costing – Knowsia

PM – Nov 2019 – L2 – Q2 – Costing Systems and Techniques

Calculate the reduction in cost per unit of three products using Activity-Based Costing (ABC) and direct labour hour allocation.

Question

Lunda Limited manufactures a range of products, many of which have short product lifecycles. Research and development staff recently designed three new products which would be manufactured in a single production cell of the company’s factory. The combined monthly manufacturing overhead costs of the three products are summarized as follows:

Activity	Costs (₦)

Production set-ups (10 per month)

200,000

Material movements (400 per month)

1,800,000

Repairs (4,000 per month)

3,000,000

Total manufacturing overheads per month

₦5,000,000

The following information is available concerning the three new products:

The company’s target costing task group expressed the view that the new products
would not be profitable, given the likely market prices and the cost of
manufacturing the products using the proposed design. In response, the product
designers indicated that no design changes were possible in relation to Product A
or B, but that changes in the design of Product C would bring about the following
reductions in the amount of monthly activity involved in manufacturing that
product without compromising either the quality or quantity of output:

Calculate the reduction in the cost per unit of each of the three products
which would occur as a result of the design changes to Product C, in each of
the following circumstances:
• If manufacturing overheads are allocated to products using activitybased costing (ABC);
• If manufacturing overheads are allocated to products on a direct labour
hour basis. (10 Marks)
b. Discuss the view that an ABC system is essential for the implementation of
target costing. Use the case of Lunda Limited to illustrate your answer.
(5 Marks)
c. The following data relates to another product of Lunda

Comment on the trends in this data set. (5 Marks)

Answer

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Tags: ABC, Cost reduction, Direct Labour Hours, Manufacturing Overheads, Target costing
Level: Level 2

Topic: Costing Systems and Techniques
Series: NOV 2019

MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

Question

XYZ Limited has just designed a new consumer product – XEE, which is expected to have a ten-year life cycle. Based on its market research, XYZ Limited’s Management has determined that the new product should be packaged in a 5kg-polymer sack with a selling price of N150 in the first four years, N120 in the next four years, and N90 per unit during the last two years.

Sales in units are expected as follows:

Year	Units
1	400,000
2	500,000
3	600,000
4	800,000
5	1,000,000
6	1,200,000
7	900,000
8	600,000
9	500,000
10	300,000

Variable selling costs are expected to be N10 per package throughout the product’s life. Annual fixed selling and administrative costs are estimated to be N1,200,000. XYZ Limited’s management desires a 25% profit margin on the selling price.

Required:
a. Compute the life cycle target cost of manufacturing the product (round up to the nearest kobo). (14 Marks)

b. If XYZ Limited anticipated that the new product will cost N90.50 per unit to manufacture in the first year, what are the maximum manufacturing costs in the following nine years? (3 Marks)

c. Suppose that the outcome of the market research indicates that expected manufacturing cost per unit over the product life cycle is N89.90, what actions would the company take to reduce this cost? (3 Marks)

(Total 20 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost Management, Life Cycle Costing, Target costing
Level: Level 1

Topic: Costing Techniques
Series: NOV 2015

MA – Nov 2020 – L2 – Q2a – Introduction to Management Accounting

Distinguish between Target Costing and Kaizen Costing in cost management.

Question

a) In cost management, Target costing and Kaizen costing play key roles. Distinguish between these two cost techniques.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost Management, Costing Techniques, Kaizen, Target costing
Level: Level 2

Topic: Introduction to management accounting
Series: NOV 2020

MA – May 2017 – L2 – Q3b – Decision making techniques

Describe the target costing process and outline possible steps to reduce a target cost gap.

Question

Wham Limited assembles and sells many types of android smartphones. It is considering extending its product range to include window phones. These smartphones produce better sound quality than traditional keypad phones and have a large number of potential additional features not possible with the previous technologies (station scanning, more choice, one-touch tuning, station identification text, and song identification text, etc.).

Android smartphones are produced by assembly workers assembling a variety of components. Production overheads are currently absorbed into product costs on an assembly labor hour basis. Wham Limited is considering a target costing approach for its new window phone product.

Required:

i) Briefly describe the target costing process that Wham Limited should undertake in order to successfully introduce its new window phone. (3 marks)

ii) Assuming a cost gap was identified in the process, outline possible steps Wham Limited could take to reduce the target cost gap. (3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost gap reduction, Cost Management, New product introduction, Product pricing, Target costing
Level: Level 2

Topic: Decision making techniques
Series: MAY 2017

PM – Nov 2019 – L2 – Q2 – Costing Systems and Techniques

Calculate the reduction in cost per unit of three products using Activity-Based Costing (ABC) and direct labour hour allocation.

Question

Activity	Costs (₦)

Production set-ups (10 per month)

200,000

Material movements (400 per month)

1,800,000

Repairs (4,000 per month)

3,000,000

Total manufacturing overheads per month

₦5,000,000

The following information is available concerning the three new products:

Comment on the trends in this data set. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: ABC, Cost reduction, Direct Labour Hours, Manufacturing Overheads, Target costing
Level: Level 2

Topic: Costing Systems and Techniques
Series: NOV 2019

MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

Question

Sales in units are expected as follows:

Year	Units
1	400,000
2	500,000
3	600,000
4	800,000
5	1,000,000
6	1,200,000
7	900,000
8	600,000
9	500,000
10	300,000

Required:
a. Compute the life cycle target cost of manufacturing the product (round up to the nearest kobo). (14 Marks)

b. If XYZ Limited anticipated that the new product will cost N90.50 per unit to manufacture in the first year, what are the maximum manufacturing costs in the following nine years? (3 Marks)

(Total 20 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost Management, Life Cycle Costing, Target costing
Level: Level 1

Topic: Costing Techniques
Series: NOV 2015

MA – Nov 2020 – L2 – Q2a – Introduction to Management Accounting

Distinguish between Target Costing and Kaizen Costing in cost management.

Question

a) In cost management, Target costing and Kaizen costing play key roles. Distinguish between these two cost techniques.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost Management, Costing Techniques, Kaizen, Target costing
Level: Level 2

Topic: Introduction to management accounting
Series: NOV 2020

MA – May 2017 – L2 – Q3b – Decision making techniques

Describe the target costing process and outline possible steps to reduce a target cost gap.

Question

Required:

i) Briefly describe the target costing process that Wham Limited should undertake in order to successfully introduce its new window phone. (3 marks)

ii) Assuming a cost gap was identified in the process, outline possible steps Wham Limited could take to reduce the target cost gap. (3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost gap reduction, Cost Management, New product introduction, Product pricing, Target costing
Level: Level 2

Topic: Decision making techniques
Series: MAY 2017

Question Tag: Target costing

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PM – Nov 2019 – L2 – Q2 – Costing Systems and Techniques

Calculate the reduction in cost per unit of three products using Activity-Based Costing (ABC) and direct labour hour allocation.

MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

MA – Nov 2020 – L2 – Q2a – Introduction to Management Accounting

Distinguish between Target Costing and Kaizen Costing in cost management.

MA – May 2017 – L2 – Q3b – Decision making techniques

Describe the target costing process and outline possible steps to reduce a target cost gap.

PM – Nov 2019 – L2 – Q2 – Costing Systems and Techniques

Calculate the reduction in cost per unit of three products using Activity-Based Costing (ABC) and direct labour hour allocation.

MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

MA – Nov 2020 – L2 – Q2a – Introduction to Management Accounting

Distinguish between Target Costing and Kaizen Costing in cost management.

MA – May 2017 – L2 – Q3b – Decision making techniques

Describe the target costing process and outline possible steps to reduce a target cost gap.

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PM – Nov 2019 – L2 – Q2 – Costing Systems and Techniques

Calculate the reduction in cost per unit of three products using Activity-Based Costing (ABC) and direct labour hour allocation.

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MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

You're reporting an error for "MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques"

MA – Nov 2020 – L2 – Q2a – Introduction to Management Accounting

Distinguish between Target Costing and Kaizen Costing in cost management.

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MA – May 2017 – L2 – Q3b – Decision making techniques

Describe the target costing process and outline possible steps to reduce a target cost gap.

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PM – Nov 2019 – L2 – Q2 – Costing Systems and Techniques

Calculate the reduction in cost per unit of three products using Activity-Based Costing (ABC) and direct labour hour allocation.

You're reporting an error for "PM – Nov 2019 – L2 – Q2 – Costing Systems and Techniques"

MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

You're reporting an error for "MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques"

MA – Nov 2020 – L2 – Q2a – Introduction to Management Accounting

Distinguish between Target Costing and Kaizen Costing in cost management.

You're reporting an error for "MA – Nov 2020 – L2 – Q2a – Introduction to Management Accounting"

MA – May 2017 – L2 – Q3b – Decision making techniques

Describe the target costing process and outline possible steps to reduce a target cost gap.

You're reporting an error for "MA – May 2017 – L2 – Q3b – Decision making techniques"

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